Markets
Markets started the week with a guarded risk‐off bias as investors tried to assess the impact of the conflict between Hamas and Israel. However, with US bond markets closed (Columbus Day), the market dynamic evidently was kind of ‘incomplete’. Initial declines in German yields were limited to about 5 bps, but European bonds (and the US Treasury futures) gained traction later in the session. Aside from the uncertainty on the Middle East conflict, the move was at least partially inspired by Fed (and ECB) comments that markets interpreted as raising the case for a prolonged pause in the hiking cycles. Fed’s Logan and especially Fed vice Chair Jefferson again raised the point that the rise in long term (real) rates might have done some of the additional tightening that the Fed was aiming for to restore the supply/demand balance and cool inflation. ECB’s De Cos indicated that he sees ever more evidence that the transmission of recent policy tightening is becoming stronger and will continue in the near future. The bond rally accelerated. German yields closed between 9.3 bps (30‐y) and 11.6 bps (5‐y) lower. European equities finished in red (Eurstoxx 50 ‐0.77%), but US indices reversed initial softness to close up to 0.63% higher (S&P 500). The ‘mixed’ risk‐off with lower yields and at the same time equity resilience left the USD indecisive. DXY initially touched 106.60 but closed slightly lower at 106.08. EUR/USD also finished the day little changed at 1.057 even as the 10‐y spread between Italy and Germany ‘settled’ above the 200 bps mark. Oil is looking for a new ‘equilibrium’ in the $ 88/b area (Brent).
US yields open sharply lower, declining up to 15‐16 bps at maturities of 5 y(+) as investors adapt positions to rising geopolitical tensions and recent Fed comments. Most Asian indices open higher, with China being the exception to the rule. The eco calendar is thin. US NFIB small business confidence and the NY Fed inflation expectations are interesting but no market movers. Fed (Waller, Kashkari, Bostic) and ECB (Villeroy) speeches are wildcards. As is the $46bn 3‐y Note auction. With headlines on the tension in the Middle East still omnipresent, some order driven, maybe even ‘erratic’ repositioning might further enfold going into the key US CPI release on Thursday. The peak levels in yields touched last week, for now, look to have become strong resistance levels. For the US 10‐y yield, the 4.50% area (23% retracement of the uptrend since early May) might be a first support. EUR/USD currently holds a ST consolidation pattern between 1.0619 and 1.0448. Even as the USD didn’t convince post‐payrolls and given the geopolitical tensions, we don’t see a strong case for a sustained USD setback, with the euro also vulnerable to a shaky global sentiment.
News and views
The British Retail Consortium reported slowing September sales growth this morning. UK Total retail sales increased by 2.7% in September, against a growth of 4.1% in August. This was in line with the 3‐month average growth of 2.7% and below the 12‐month average growth of 4.2%. Food sales increased by 7.4% over the three months to September with non‐food sales decreasing by 1.2% over that period. The proportion of Non‐Food items bought online (penetration rate) decreased to 34.9% in September from 35.1% in September 2022. The CEO of the BRC said that the high cost of living continues to bear down on households with big ticket items performing poorly and the Indian summer delaying sales of autumnal clothing, knitwear and coats. The coming months are crucial for retailers as they enter the “Golden Quarter” and they’re investing heavily to support customers and bring prices down.
The Japanese Economic and Social Research Institute published its September Economy Watchers Survey this morning. The outcome disappointed both for the current situation (49.9 from 53.6 vs 53.2 expected) and the outlook (49.5 from 51.4 vs 51.3 expected). For both, it was the softest reading since January this year. In the forward looking component, we highlight a significant further decline in the employment component, from 52.2 to 48.9 and form levels as high as 58.2 in May.
